Bankruptcy when joint mortgage

sallymeak

Hi

Can anyone advise on this:

I have a business that has recently closed and bankruptcy might be the way the official receiver heads for. I have no assets. I have a mortgage with my mum and we are 50/50 on the mortgage but it is in negative equity by about £40,000

If I am made bankrupt because of my own dents, if they take the house (which is probably unlikely due to the lack of equity) then would my mum still get part of her earnings taken from her despite the debt being about me?

The house will have to go at some point as it's on an interest only mortgage and we have no ISA or pension to cover it so really, it would be better for this to go sooner rather than me having to go bankrupt again when the mortgage is called in.

If the house goes, I expect they will see some of the debt as hers and this would be where they justify taking her excess salary also?

Thanks

maxmycardagain

The OR will have no interest in a property with negative equity

Were you a sole trader or Ltd company?

If the house had already been taken back and you went BR your debts would be written off but oddly your mum would be asked to pay the whole shortfall... i think

sallymeak

Thanks for clarifying. I did think they wouldn't take the house.

The business was Limited but sadly I have an overdrawn directors loan account which I have to repay back to the company as I have not met with corporation tax. I was considering applying for strike off as have no assets but am worried about bankruptcy if the official receiver is called in with my mum being make bankrupt as well.

The house will go and I do wonder whether its easier to get it all out of the way now or have to go through it twice.

silvercar

If the house goes and you have become bankrupt (when the house goes or at a previous point in time) then the negative equity is written off by your bankruptcy. This leaves your mum with all the negative equity. The lender will try to persuade your mum to come up with a repayment plan.

I doubt that the lender would make your mum bankrupt. If you mum can come up with a repayment plan all well and good, if not then there is not much for the lender to do.

One plan is to keep hold of the house until there is no negative equity.

sallymeak

Sadly this isn't an option silvercar. She is on minimum wage and doesn't earn a great deal and is probably left with about £100 per month after all outgoings so paying off the mortgage's negative equity wouldnt help, plus the mortgage and secured loan would still remain outstanding at the end of the terms (£110,000) resulting in further bankruptcy.

System

maxmycardagain wrote: »

The OR will have no interest in a property with negative equity

Actually this isn't correct. They will have a claim on 50% of the value of the property and can go after any equity years down the line. In this case it is worth the other party buying out the OR's interest in the property which will merely involve paying some legal fees that the OR accrues removing their claim and is a few hundred quid from memory.

silvercar

sallymeak wrote: »

Sadly this isn't an option silvercar. She is on minimum wage and doesn't earn a great deal and is probably left with about £100 per month after all outgoings so paying off the mortgage's negative equity wouldnt help, plus the mortgage and secured loan would still remain outstanding at the end of the terms (£110,000) resulting in further bankruptcy.

In the scenario you are describing:

You go bankrupt sometime soon. Your responsibility for any negative equity in the house is part of your bankruptcy. The OR has no interest in the property as there is no equity (though the OR may wait til nearly 3 years past your bankruptcy date to make a final decision).
At the 3 year point or before, the OR offers you/ your mum to buy back the equity for legal costs.
Now you are left with a joint mortgage and a property with no equity.
You and/or your mum continue to pay the mortgage.
At the end of the mortgage term you both have no way of clearing the loan. You either remortgage elsewhere (easier if this is a few years down the line) or you sell up (easier if there is now some equity in the property to repay the loan) or you have the keys back and walk away.
If there is still negative equity at that time, you responsibility for it falls into your original bankruptcy. The lender can try chasing your mum, but if she has little income and no savings there is little they can do. They won't make her bankrupt as they won't get anything.

There is no need for you to contemplate a further bankruptcy as the one you are doing now will take care of your share. There is no need for your mum to consider bankruptcy as there is no need. She will have a debt she can't pay. No-one can do anything about that; she won't be the first case the lender has seen.

sallymeak

Thanks silvercar, that is great to know! Very reassuring.

We did think about remortgaging on a repayment but as she is 60 they wont entertain it and I have bad credit and no deposit to hit a wall on it

maxmycardagain

Tarambor wrote: »

Actually this isn't correct. They will have a claim on 50% of the value of the property and can go after any equity years down the line. In this case it is worth the other party buying out the OR's interest in the property which will merely involve paying some legal fees that the OR accrues removing their claim and is a few hundred quid from memory.

except as the mum nor the OP is earning enough to pay the mortgage (it seems) the house is doomed anyway?

sallymeak

I agree with you maxmycard - there is not enough to keep the house on and I will never be able to get a mortgage by going it alone so you are right in what you say. Whether now or in the future, it will have to go sadly

silvercar

sallymeak wrote: »

I agree with you maxmycard - there is not enough to keep the house on and I will never be able to get a mortgage by going it alone so you are right in what you say. Whether now or in the future, it will have to go sadly

If it goes now, where do you live? If you are going to rent then it seems worth comparing the cost of a rental with what you are currently paying on a mortgage. If the mortgage is cheaper you may as well stay put.

You need to calculate essential maintenance over the next few years vs agents fees and the cost/risk of having to move frequently in a rental as well as the rent v mortgage.


The saving grace is if house prices increase before the mortgage ends. That gives you a chance to rescue the situation and possibly have a lump sum to walk away with.